Multilevel Marketing And The House Of Cards: Regulators As Financial Partners

Since the 17th Century a “house of cards” meant something “shaky, or in constant danger of collapse.” The popularity of the Netflix series of the same name gave the term additional meaning, one less tenuous and more aggressive: “The series deals primarily with themes of ruthless pragmatism, manipulation, and power.” Oddly, both meanings may be relevant to the MLM industry.

Day-in-and-day-out regulators impact the ability of companies to make money. The impact comes through rules that impose costs (e.g., compliance reporting, testing and product safety requirements, etc.), enforcement actions that punish and deter specific behaviors (e.g., General Motors, BP, Goldman Sachs, and soon Volkswagen), or both. If such actions affect a company’s bottom line, then the absence of regulatory oversight in the presence of misrepresentations and fraud can have the opposite outcome-putting money in the pockets of under-regulated companies and their owners.

For more than thirty-five years the MLM industry has managed to avoid federal regulatory oversight while successful prosecutions have had little apparent impact. Why? And more importantly, whom has it benefited and whom has it harmed?